Broker is high on Fox, gloomy on new News

Seven West Media and 21st Century Fox are the media stocks best placed to benefit from a recovery in the Australian and global economies, according to one broker.

The least preferred media stocks are New News Corp (NNC) and Ten Network Holdings, in the view of Commonwealth Bank of Australia Equities Research.

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The broker expects a cyclical recovery in 2014 driven by spending on the Federal election and improving consumer and business confidence (assuming there isn’t another hung parliament) amid rising global confidence and fewer concerns in Europe.

CBA rates Seven West Media as the best stock to play during cyclical recovery, benefiting from a limited risk to TV ratings over the next 12 months and a strong focus on reducing costs.

It regards Fox, the entertainment empire formed from the demerger of News Corp, as a core holding with attractive assets and a strong balance sheet.

The broker maintains a cautious view on NNC given the company’s substantial exposure to newspapers and risks of a further downside in Australia over the next 1-2 years, combined with “very poor disclosure around the most risky assets” and downside risks to consensus earnings.

It forecasts Ten is unlikely to see a ratings turnaround until 2014, with a revenue share recovery even later than that.

CBA is projecting a slim 1.1% growth in the total Australian advertising market this year, lifting to 3.6% in 2014, with newspapers declining by 16% and 11% in those two years and free-to-air TV gaining by 1.6% and 3%, from $3.5 billion to $3.6 billion.

Pay-TV advertising revenues are expected to grow from $481 million to $524 million in 2014, while the cinema ads sector rises from $97 million to $104 million.